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PVH Corp. (PVH) Beats on Q2 Earnings, Raises EPS View

Zacks Equity Research

PVH Corporation PVH delivered another strong quarter with second-quarter fiscal 2016 earnings per share surpassing estimates for the ninth consecutive quarter. Further, the company raised its earnings guidance for fiscal 2016, thus keeping the stock active in the after-hours trading session yesterday.

The company’s adjusted earnings per share of $1.47 not only significantly beat the Zacks Consensus Estimate of $1.28, but also exceeded its own guidance range of $1.25–$1.30. Also, the bottom line rose 7.3% year over year, despite having borne the adverse effects of about 46 cents per share from foreign currency headwinds.
 
On a GAAP basis, PVH Corp. reported earnings of $1.11 per share that dipped 9% from $1.22 earned in the year-ago quarter.

PVH CORP Price, Consensus and EPS Surprise

PVH CORP Price, Consensus and EPS Surprise | PVH CORP Quote

Quarter in Detail

PVH Corp.’s total revenue gained nearly 4% to $1,933.3 million, but fell marginally short of the Zacks Consensus Estimate of $1,937 million. However, top-line growth was in line with the company’s projections. On a constant currency basis, the company’s total revenue rose 5%, coming in line with management’s expectations.

Revenue growth was mainly driven by continued strength noted in the Tommy Hilfiger and Calvin Klein brands, particularly in international markets. The company is especially pleased with the spectacular performance of these brands in Europe and Asia. However, the top-line miss can be attributed to the persistent weakness in the U.S retail businesses due to soft traffic and consumer spending trends at its Tommy Hilfiger and Calvin Klein U.S. stores located in international tourist locations.

Adjusted gross profit rose 4.7% year over year to $1,038.2 million, with the adjusted gross margin expanding 50 basis points, to 53.7%.

Segment Analysis

PVH Corp. reports its financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.

Calvin Klein’s revenue escalated 12% year over year to $726 million. On a currency neutral basis, it was up 15%, driven by a respective 12% and 17% currency-neutral revenue increase in the brand’s North American and International business.

North American operations gained strength from solid wholesale business growth, which in turn was driven by robust performance across all businesses. On the other hand, the brand’s retail sales witnessed only modest upside as benefits from store expansions were partly offset by soft comparable-store sales (comps). Comps fell 4% year over year, on account of continued weak traffic and decreased consumer spending trends across the company’s U.S. stores in international tourist locations.

The brand’s international business’ comps jumped 11% on the back of strength in its European and Asian operations.

Revenue at the company’s Tommy Hilfiger segment increased 6% to $860 million, while it rose 7% on a constant currency basis, backed by 3% and 11% constant-currency sales growth in the brand’s North American International businesses, respectively.

Tommy Hilfiger’s North American revenue growth was attributed to strength in its wholesale business, offset by persistent softness in its retail operations. Evidently, comps for the brand’s North American business tumbled 7%, attributable to persistent softness in traffic and consumer spending trends at its U.S. stores in international tourist locations.

On the other hand, the brand’s international business continued to gain from strength in Europe and its Apr 2016 acquisition of the remaining 55% interest in TH China. Comps for the international business rose 8%.

The Heritage Brands segment’s revenues slumped 14% year over year to $347 million due to the ongoing rationalization of this business by exiting various lines of business. As a part of this, the company recently shut down its Izod retail division and discontinued numerous licensed product lines in its dress furnishing business. Additionally, quarterly results were hurt by weakness in the neckwear category and a timing shift of wholesale shipments into the third quarter this year compared with the second quarter last year. These were, however, somewhat offset by a 11% jump in its Van Heusen comps.

Financials

The company ended the quarter with cash and cash equivalents of $741.7 million, long-term debt, excluding current maturities of $3,358.2 million, and shareholders’ equity of $4,803.5 million.

During the first half of fiscal 2016, the company repurchased about 1.4 million shares for roughly $129 million of common stock under its Jun 2015 authorization of $500 million, extending over a three-year period.

Fiscal 2016 Guidance

Though management is encouraged with PVH’s solid quarterly performance, it remains cautious of adverse foreign currency movements, volatility in global consumer spending and a tough promotional retail environment, going forward. Nonetheless, the company remains confident of its strategic endeavors, which encouraged management to raise its fiscal 2016 earnings outlook.

The company now envisions fiscal 2016 adjusted earnings per share in the range of $6.55−$6.65, up from $6.45−$6.55 expected earlier. The latest guidance includes an expected $1.60 per share negative impact from currency headwinds.

However, the company retained its revenue projections for fiscal 2016, anticipating a 2% improvement year over year. On a currency neutral basis, revenue is expected to grow about 3% compared with the previous forecast of 2% growth.

Third-Quarter Guidance

For third-quarter fiscal 2016, the company expects total revenue to rise 3% on both year-over-year and constant-currency basis.

Adjusted earnings per share for the third quarter are expected to be in the range of $2.35–$2.40, including 45 cents per share negative impact from currency translations.

Zacks Rank

PVH Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Differential Brands Group Inc. DFBG and Ralph Lauren Corp. RL, each carrying a Zacks Rank #2 (Buy). Another well-ranked stock in the apparel retail industry is Urban Outfitters Inc. URBN, with a Zacks Rank #1 (Strong Buy).

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